Lord Warner: The Bill specifies that it is for the regulator to determine what standards, techniques and procedures should be specified for audit. We expect that the independent regulator will follow best practice in setting the audit requirements, and that he will consult widely before doing so. Nothing in this legislation prevents the regulator from getting to the end point that the noble Baroness would like him to get to. We are placing an obligation on the regulator as the person who agrees the authorisations for NHS foundation trusts to determine the standards, techniques and procedures required for audit. Again, the regulator will have access to all the kinds of bodies

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that the noble Baroness mentioned. We are absolutely confident that he will have regard to that in specifying his requirements.

Baroness Noakes: I thank the Minister for that reply, which was not a surprising one. I am detecting that, alongside flexibility, which is one of the themes of the Bill, we have another themewheel reinvention in the Department of Health. The department seems to want to do everything itself or through its own appointed agents, including those things that no other body in this country, in any circumstance, would dream of trying to do on its own. I find that extraordinary, and we may return to the matter. I beg leave to withdraw.

Amendment, by leave, withdrawn.

[Amendments Nos. 73 to 75 not moved.]

Baroness Noakes moved Amendment No. 76:

Page 112, line 28, leave out "any" and insert "the"

The noble Baroness said: In speaking to the amendment, I shall also speak to the similar amendment, Amendment No. 82.

Under paragraph 23(4)(a), there is a requirement for foundation trusts to lay copies of their annual accounts before Parliament each year. That is accompanied by any audit report thereon, which implies that there might not be an audit report on the accounts. Our amendment is very simple, as it replaces "any" with "the", so that when the body submits an annual report, which it must, the report must be accompanied by the annual audited accounts. I hope that the Minister regards the amendment as simply technical, and that there would not be any circumstances in which the Government would allow foundation trusts to lay unaudited financial statements before Parliament. That is an unthinkable proposition in terms of annual accounts in the private sector and, I believe, in the public sector.

In the private sector, there are strict timetables that require things to be done within certain times, with the effect of concentrating the minds of those preparing and auditing accounts on getting to the end of the process, even if it is proving troublesome. It may be that the Bill would be improved by the addition of time-scales. However, in the mean time, I hope that the Government agree that audited accounts must be laid under paragraph 23 and presented to the board of governors under Clause 26. I beg to move.

Lord Warner: There may be a misunderstanding here. Auditors will be assessing whether NHS foundation trusts are complying with the Clause 38 "value for money duty", as well as auditing the annual accounts. They will also be required to consider reporting on any concerns that may arise as they audit the accounts, because it is generally in the public interest to do so. Such a report can be made immediately and can therefore be made separately from the report on the annual accounts.

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It is appropriate that the public interest reports are also made available to Parliament and the boards of governors. That is why we believe that Amendments Nos. 76 and 82 are misplaced, as they will not take account of the fact that there are other reports.

Baroness Noakes: I thank the Minister for that explanation. I now partly understand where he is coming fromthat is, if there is more than one audit report, it should be included. However, I do not believe that it deals with the point that I raised, which was whether there could be a possibility of including unaudited financial statementsthat is, the basic audit report on the accounts. As drafted, it appears that the annual report could be submitted without audited accounts. In order to achieve the effect of those being submitted with any other audit reports that happen to exist when the audit report is submitted, I suggest to the Minister that his officials may wish to reconsider the drafting before he comes back on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Earl Howe moved Amendment No. 77:

Page 112, line 38, at end insert

"( ) The report shall contain a breakdown of the costs incurred by the public benefit corporation running elections and managing the membership."

The noble Earl said: In moving Amendment No. 77, I shall speak simultaneously to Amendments Nos. 79, 80 and 81. One problem that I have with NHS hospitals running elections and membership lists is that, as I believe I said before, it is a distraction from their core task of looking after sick and injured patients. It is also likely to be an expensive distraction. The Minister will no doubt say to me that one cannot have democracy without paying for it. That is true, but the question which that statement begs is whether, in this instance, the game is worth the candle.

Let us set aside for the moment the larger question of whether enfranchisement of the public and staff will really offer empowerment and let us consider the cost to the hospital. The Government have gone to great pains not to lay down a precise blueprint for each hospital's constitution. They are helpfully offering suggestions, but the fact remains that each trust will be responsible for deciding its own constitution and then instructing lawyers accordingly. There will be no escape from very sizeable legal fees, replicated many times over.

Hospitals have no experience of running elections or of maintaining and servicing a constantly changing list of members. Not only will this system require a whole new set of skills; it will require management time. The business of elections can no doubt be sub-contracted out. However, there is no getting away from itthe hospital management will retain the ultimate responsibility for ensuring that the Government's system is being properly run, that members are notified of meetings and that regular bulletins are sent out to members, and so on.

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The research commissioned by my party suggests that that activity will cost each and every foundation trust at least #250,000 a year. That is probably a conservative figure in more senses than one. A few days ago, I was speaking to a chief executive of a major teaching hospitala foundation trust applicant, I hasten to say. He told me that his hospital was working on a figure of #400,000 a year. That sum does not include the cost of his own time, nor, I emphasise, the intangible opportunity cost of taking him away from his main responsibilities of running the hospital. It is all money that is taken away from the care of patients.

The Government are likely to get their way in introducing this electoral system for foundation trusts. But, if that is so, the very least that is needed is for people to know how much money is being devoted to that system. Without that kind of transparency, we shall find the costs of elections mushrooming disproportionately. The figures should feature as standard in every foundation trust's annual report. That is what my Amendment No. 77 proposes.

I move on to Amendment No. 79, which deals with a rather different, and more straightforward, issue. Paragraph 23 of Schedule 1 states that foundation trusts must prepare annual accounts in respect of each financial year; in other words, the year to 31st March. Paragraph 6 of Schedule 2 tells us that the regulator must prepare a report for the Secretary of State on how he has exercised his functions during the previous financial year. The financial year is the basis for both the annual accounts of each foundation trust and the regulator's annual report. Then we read in paragraph 24(3)(c) of Schedule 1 that the reports to be produced by each foundation trust must cover whatever period the regulator decides they should cover. It is not clear to me why provision is made for the annual report to cover a different period from that of the accounts. That is not normal practice. Nor is it clear to me why, for his own purposes, the regulator needs that kind of discretion. The period that his report to Parliament has to cover is, as I have pointed out, the financial year and no other period.

In another place the Minister said that the provision in Schedule 1 paragraph 24(3) was,

I genuinely do not understand what such circumstances could be nor why leeway of that kind might be helpful to the trust or to the regulator. I should be glad if the Minister could tell me whether I have missed something.

On the basis that the Minister is not minded to meet the point that I have just made for whatever reason, Amendment No. 80 is designed to tighten up what appears to be rather woolly wording in paragraph 25(1) which states that,

"A public benefit corporation is to give information as to its forward planning in respect of each financial year to the regulator".

To be consistent with what has gone immediately before, it seems to me that mention of "each financial year" should be deleted and "a period of time to be

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determined by the regulator's discretion" should be inserted. Without that we could have a situation in which the annual report covers a period that is different from that of the financial year, but forward planning information covers the financial year. That would make little sense. There is also no indication of what information is covered by the provision. It is for the regulator to specify it rather than for foundation trusts to intuit it in some magical way and the Bill should say so. I beg to move.

6.15 p.m.

Lord Clement-Jones: This group contains a rich mix of amendments. They do not appear to have a strong relationship with each other. I want to speak to Amendments Nos. 78, 83 and 107. There has been no hint about the piloting of foundation hospitalsno prior consultation took placeand that is an underlying reason for the strong opposition, not only on Opposition Benches but also on Government Benches, to the effect on local health economies of NHS foundation trusts.

This provision is designed to establish the areas of evaluation that should be built into the review and reporting cycle of foundation trusts and, through the wider status of these documents, promote discussion by members of the foundation trusts and the wider community that support the trusts. That would enable far wider scrutiny at local level across a range of organisations and services. Of course, it would provide material for local authority oversight and scrutiny of healthcare provision and, in fulfilling his duties, it would enable the regulator to have access to information about the effect on the local healthcare economy, which would enable him or her to question and to comment on the effects of the NHS foundation trusts on healthcare and the healthcare economy in his or her area. Generally I believe that the provision of that information would increase the accountability of the role of the regulator through the parliamentary system.

These documents would have considerable benefits. This matter goes to the heart of the concerns that many people have expressed about the impact of foundation hospitals. It is a straightforward way of enabling much greater transparency of the impact of foundation trusts and I hope that this approach commends itself to the Minister.